Question

Equipment was acquired on January 1, 2021, for $33,000 with an estimated four-year life and $2,000 residual value. The company uses straight-line depreciation. Record the gain or loss if the equipment was sold on December 31, 2023, for $10,600.

Answer 1

Answer:

Gain= $850

Explanation:

Giving the following information:

Purchase price= $33,000

Useful life= 4 years

Residual value= $2,000

Sale= $10,600.

First, we need to calculate the annual depreciation:

Annual depreciation= (original cost - salvage value)/estimated life (years)

Annual depreciation= (33,000 - 2,000)/4= $7,750

Now, we can calculate the accumulated depreciation:

Accumulated depreciation= 7,750*3= $23,250

To calculate the gain or loss, we need to use the following formula:

Gain/loss= selling price - book value

Book value= purchase price - accumulated depreciation

Book value= 33,000 - 23,250= $9,750

Gain/loss= 10,600 - 9,750

Gain= $850